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Trading was volatile, capping one of the most tumultuous weeks on record for world markets as fear of a Greek default and a gloomy Federal Reserve prognosis for the U.S. economy sparked a sell-off in stocks and commodities and drove investors to the safe-haven U.S. dollar and Treasuries.

A pledge by G20 policy makers that they will calm the global financial system failed to appease investors, who are concerned that authorities are unable to respond effectively to the mounting euro zone debt crisis and sluggish growth in major world economies.

Gold slumped more than 6 percent at one point -- its biggest drop since the financial crisis in 2008 -- to hit its lowest since early August as a slide turned into a free-fall, with weeks of volatility and talk of hedge fund liquidation wrecking its safe-haven status.

"The bull case for gold is on pause for the near term," said Adam Klopfenstein, senior market strategist for precious metals at MF Global in Chicago.

"In the near-term, the flight-to-quality interest in owning gold is also out of the window as people are not interested in buying it even in the face of fears in the economy. Until it stabilizes, I'm staying out of this market."

Spot gold was last at $1,649 an ounce, after falling to a session low under $1,628. At $127 an ounce, the intraday move was the biggest on record in dollar terms.

U.S. stocks ended higher after seesawing between gains and losses, stopping the bleeding after a disastrous four days of selling marred by severe anxiety.

Comments from European Central Bank Governing Council member Ewald Nowotny, who said it might be advisable for the central bank to add more liquidity to European banks helped lift sentiment.

The Dow Jones industrial average ended up 37.65 points, or 0.35 percent, at 10,771.48. The Standard & Poor's 500 Index was up 6.87 points, or 0.61 percent, at 1,136.43. The Nasdaq Composite Index was up 27.56 points, or 1.12 percent, at 2,483.23.

Global stocks as measured by the MSCI All-Country index were up 0.2 percent, after hitting their lowest level since July 2010 at 274.20.

The index is now in bear market territory -- defined as a fall of 20 percent or more from the peak -- having tumbled more than 22 percent from its 2011 high in May.

"Financial markets are sick and tired of the authorities in Europe and in the U.S. twiddling their thumbs and not doing substantive things to solve this crisis of the global economy," said Barton Biggs, managing partner at New York-based Traxis Partners.

The FTSEurofirst 300 index ended up 0.8 percent. Emerging markets stocks slid 1.6 percent.

COMMODITIES ROUT

Liquidity comments from ECB officials and speculation the central bank may cut rates helped sentiment initially, but uncertainty about Greece remained.

Greece denied reports that one option in its debt crisis would be an orderly default with a 50 percent haircut, while Deutsche Bank warned that European banks' write-downs on Greek bonds could exceed 25 percent.

Metals prices plunged across the board. Silver prices posted their biggest drop since 2006. Spot silver was down 15 percent and trading below $35.76 an ounce after hitting a session low of $29.77.

Copper hit $7,115.75, its lowest since August 2010. It was its sharpest weekly decline in nearly three years for the economically sensitive red metal.

U.S. crude fell 66 cents to settle at $79.85 a barrel. London Brent crude fell $1.52 to settle at $103.97.

The euro rose 0.4 percent to $1.3515, rebounding from an eight-month low. The dollar rose 0.5 percent to 76.66 yen and was on track for its best month since May 2010 against a basket of currencies.

U.S. Treasuries prices slipped after a huge rally this week.

Benchmark U.S. 10-year notes were down 1-2/32 in price, with yields rising to 1.84 percent. Prices of 30-year bonds were down 2-1/32, yielding 2.90 percent.

(Additional reporting by Ryan Vlastelica, Steven C. Johnson and Barani Krishnan in New York and Harpreet Bhal in London; Editing by Andrew Hay)

Finance chiefs from around the world have turned up the heat on Europe to do more to prevent Greece's debt woes from infecting other euro zone countries and the world economy.

Concern now appeared to be turning toward safeguarding the banking system more than rescuing Greece, as international lenders were increasingly losing patience with Athens consistently missing fiscal and reform targets.

British finance minister George Osborne said the euro zone needed to gain control of the situation by the time leaders of the Group of 20 economies meet in France in November.

"They have six weeks to resolve this crisis," he said on the sidelines of semiannual policy discussions in Washington.

World stock markets, which had plunged to a 14-month low on fears about the scale of the crisis, steadied after European Central Bank officials said they would use more firepower to help the banking system withstand financial strains.

Pressure is growing on European governments for a recapitalization of the region's banks to strengthen them in the event of a Greek default.

At the same time, European policy-makers seemed to be warming to the idea of giving more muscle to their bailout fund, which would be sorely tested if Athens defaulted.

Greek Finance Minister Evangelos Venizelos was quoted by two newspapers as saying an orderly default with a 50 percent haircut for bondholders was one way to resolve the heavily indebted euro zone nation's cash crunch.

Greece is in tense talks with the International Monetary Fund and European authorities, known as the troika, to secure a new 8 billion-euro installment of its rescue package to avoid bankruptcy in October.

In return for aid, Athens pledged austerity measures, but negotiators have expressed frustration at what they say is Greece's slow reform pace. The nation's finance minister is due to meet the head of the IMF on Sunday.

"The troika officials said they were going over again measures they had agreed to months before. They said they had a sense of deja vu," a source close to the talks said on condition of anonymity.

October's loan payment, however, is still widely expected to be made. The next installment is due in December.

ECB President Jean-Claude Trichet urged authorities to take decisive action, saying risks to the financial system had "increased considerably."

Lawrence Summers, a former U.S. treasury secretary, gave a somber assessment of the dangers facing the world economy, including a U.S. recovery that has neared a standstill.

"This is the 20th annual meeting (of the IMF and World Bank) I've been privileged to attend. There has not been a prior meeting at which matters have had more gravity and at which I have been more concerned about the future of the global economy," Summers told a discussion panel.

PUZZLE PIECES

As European policymakers looked to piece together a bolder crisis-fighting strategy, investors took some relief as three officials said the ECB could revive its one-year liquidity lines to shore up banks.

"I think it might be advisable to think about reintroducing this approach," ECB governing council member Ewald Nowotny said.

The IMF, which has been pressing aggressively for a recapitalization of Europe's banks, reckons the debt crisis has increased their risk exposure by 300 billion euros.

In a sign Europe was coming to terms with the idea of a recapitalization, France's top market regulator said 15 to 20 banks needed extra capital.

The growing talk of a Greek default met with stiff opposition from German Chancellor Angela Merkel. She told a meeting of her political party members that default was not an option because it might trigger a domino effect with other struggling economies. "The damage would be impossible to predict," Merkel warned.

Politicians in northern Europe, especially in Germany, have opposed dedicating more money to fight a crisis that they see as caused by the profligacy of other euro zone members. Now, leaders will have to navigate the tricky politics.

"It's not a question of ability for the euro zone," Bank of Canada Governor Mark Carney. "It is a question of political will."

ECB governing council member Klaas Knot told a Dutch daily a Greek default could no longer be ruled out, a warning echoed by the IMF's top official in Europe, Antonio Borges.

"If the Greeks do what they have to do there will be no default," Borges said. "But on the other hand if they hesitate, procrastinate, find it impossible ... then it is very hard to avoid."

G20 finance ministers and central bankers had pledged on Thursday to "take all necessary actions to preserve the stability of the banking system and financial markets as required," a statement that failed to placate investors.

The G20 communique said the 17-nation euro zone would implement actions to "maximize" the impact of the region's bailout fund by mid-October.

G20 participants did not say how the 440 billion-euro European Financial Stability Facility might be altered although French Finance Minister Francois Baroin used the word "leverage" in comments to reporters.

The United States has called on Europe to leverage up the EFSF to give it more firepower.

(Additional reporting by IMF reporting team in Washington, Sakari Suoninen in Frankfurt, Natsuko Waki and Ana Nicolai da Costa in London, Lefteris Papadimas and Ingrid Melander in Athens; Writing by William Schomberg, Glenn Somerville and Paul Taylor; Editing by Chizu Nomiyama and Neil Stempleman)

Greek Finance Minister Evangelos Venizelos was quoted by two newspapers as saying an orderly default with a 50 percent haircut for bondholders was one of three possible scenarios for resolving the heavily indebted euro zone nation's fiscal woes.

Officials played down the reports and Venizelos described them in a statement as an unhelpful distraction from the central task of sticking to Greece's EU/IMF bailout program.

European Central Bank governing council member Klaas Knot told a Dutch daily a Greek default could no longer be ruled out, the first ECB policymaker to speak openly of the prospect.

"It is one of the scenarios," Dutch daily Het Financieele Dagblad quoted him as saying.

"All efforts are aimed at preventing this, but I am now less certain in excluding a bankruptcy than I was a few months ago," Knot said, adding that he wondered "whether the Greeks realize how serious the situation is."

More signs emerged on Friday that European governments are working on recapitalizing vulnerable banks, with France's top market regulator saying 15 to 20 banks needed extra capital, although no French ones "at this stage.

The International Monetary Fund reckons Europe's banks could need to recapitalize to the tune of 200 billion euros and many bank analysts are far gloomier than the Fund.

The European Commission said European banks had already received 420 billion euros in funds since 2008 and were in much better shape than three years ago.

"The recapitalization of European banks is something that is ongoing, it is something that is already happening," Commission spokesman Olivier Bailly told a regular briefing.

European shares fell again, leaving them on course for a fifth straight month of losses, after a commitment from G20 finance ministers and central bankers to "take all necessary actions to preserve the stability of the banking system and financial markets as required" failed to placate investors.

A statement issued after G20 talks in Washington said the 17-nation euro zone would implement "actions to increase the flexibility of the EFSF and to maximize its impact" by mid-October.

But it left unclear whether they would go beyond an already agreed widening of the euro zone bailout fund's powers, which has so far failed to reassure.

Newspaper Ta Nea said Venizelos had told Socialist lawmakers behind closed doors that the government's central scenario was to stick to austerity plans to receive a second 109 billion ($146 billion) bailout and avoid bankruptcy.

The alternatives were either an agreed restructuring of Greek debt with a 50 percent reduction in the face value of government bonds, or a disorderly default, he said.

Greek bank shares fell by nine percent on the reports, prompting Venizelos to say in a statement: "All other discussions, rumors, comments, scenarios which are diverting our attention from this central target and Greece's political obligation ... do not help our common European task."

Deutsche Bank said European banks may face a bigger-than-expected hit from an internationally agreed swap arrangement on Greek government debt, which has still to be sealed.

Private sector creditors agreed in July to take a 21 percent loss on Greek bonds maturing before 2020, but the loss is more likely to be 25 percent or more, said Charlotte Jones, in charge of group controlling at Germany's biggest lender.

The European Union's top economic official, Olli Rehn, said in a speech in Washington that the EU was doing everything to avoid an uncontrolled default. He did not explicitly rule out an orderly restructuring of Greek debt, which many economists see as inevitable.

Venizelos was flying to Washington for weekend meetings of the International Monetary Fund and World Bank and is expected to discuss Greece's position with fellow finance ministers on the sidelines.

The government approved a raft of more draconian austerity measures this week, including putting 30,000 public employees on a path to redundancy, cutting pensions and raising taxes, in an effort to secure the next 8 billion euro loan installment vital to avoid running out of money in mid-October.

LEVERAGE?

Shares of several European banks have plunged and funding costs have risen as investors worried about exposure to debt issued by Greece and other debt-heavy European countries.

G20 participants did not say how the 440 billion euro EFSF might be altered although French Finance Minister Francois Baroin used the word "leverage" in comments to reporters.

The United States has previously proposed that Europe could leverage up the European Financial Stability Facility, giving it more firepower to protect the euro zone and its banks. German politicians and central bankers say that would be illegal.

A U.S. official, speaking after the G20 meeting, said the group showed a heightened sense of urgency but did not discuss a specific mechanism to leverage or expand the bailout fund.

Politicians in northern Europe, especially in Germany, have opposed dedicating more money to offset what they see as the profligacy of countries such as Greece. Those tensions have also flared within the European Central Bank over its role in buying bonds of struggling euro zone states.

However, Europe has come under heavy pressure from the United States and other countries to take bolder steps.

Earlier on Thursday, U.S. Treasury Secretary Timothy Geithner voiced optimism that Europe would devote more of its own resources to backstop euro area governments and banks.

"I am very confident they're going to move in the direction of expanding (their) effective financial capacity," he said. "They're just trying to figure out how to get there in a way that is politically attractive."

The leaders of seven big economies stressed the need to contain the debt crisis, and finance officials from the so-called BRICS countries, including heavyweights China, Brazil and India, said they would consider giving more funds to the IMF to boost global stability.

But India said developing countries were not in a good position to bail out richer economies and the U.S. official said the G20 had not talked about emerging economies providing the IMF with more funds.

(Additional reporting by Sakari Suoninen in Frankfurt, Daniel Flynn in Washington, Natsuko Waki and Ana Nicolai da Costa in London, Lefteris Papadimas and Ingrid Melander in Athens,; Writing by Paul Taylor, editing by Mike Peacock)

* Economic Cycle Research Institute (ECRI) releases at 1430 GMT its weekly index of economic activity for September 4. In the prior week the index read 122.4.

* Republicans in the U.S. House of Representatives regrouped on Friday to approve a must-pass spending bill, but the prospect of a government shutdown loomed as Democrats said it would go nowhere in the Senate.

* UBS CEO Oswald Gruebel will on Friday attempt to convince his board the Swiss bank has a future in investment banking and can bounce back from a $2.3 billion crisis around rogue trading.

* PNM Resources said it plans to sell Texas-based electricity provider First Choice Power to Direct Energy for $270 million, as it looks to return to its core pure-play electric utility business.

* Facebook unveiled new ways for users to listen to music and watch TV, offering tie-ups with the likes of Spotify and Hulu, as it attempts to make media an integral part of its social networking service.

The media push comes as Facebook faces fresh competition from Google, which in June launched a rival social networking service, Google+.

* Nike Inc staved off margin pressure in the first quarter with strong revenue and price increases, and said it was confident about its position among peers. Shares were up 4.7 percent after the bell.

* European shares rose in a tentative recovery on Friday following sharp falls the previous session after the Group of 20 economies pledged action to help financial markets and increase the flexibility of the euro zone's rescue fund.

* The Dow Jones industrial average dropped 391.01 points, or 3.51 percent, to 10,733.83 on Thursday. The Standard & Poor's 500 Index lost 37.20 points, or 3.19 percent, to 1,129.56. The Nasdaq Composite Index slid 82.52 points, or 3.25 percent, to 2,455.67.

* Wall Street's "fear gauge," the CBOE Volatility Index, jumped 12 percent, giving the index its biggest two-day percentage spike in a month as investors protected themselves against future losses.

(Reporting by Atul Prakash; Editing by David Hulmes)